Buy an unlocked phone on 98% APR finance

I was browsing around this evening and came across a ‘Phones on Finance‘ advert. At first I thought this was a little suspect — why would you want to get a loan to buy a phone worth £100?

For some reason I’m still in the mindset of pay as you go phones all being under £100.  Not so: A quick visit to Virgin Mobile’s pay as you go shop shows handsets on sale up to £299.

But if you’re after a top of the range handset at almost £500, I could understand that a small subset of pay as you go mobile users who want the latest handsets might well be up for that.

In fact if I was hunting around for a N93 at around £500ish, I might well consider subsidising the cost with a contract from an operator.  But a loan? Hmm.

I thought I’d examine this a little more.

How much would it cost for bog standard Nokia 6103?  At 93.8% APR (!), total payable for the handset excluding insurance is £419.09 — paid over 40 weeks or 9 months.   Gosh!  That looks expensive.

How much is the handset to buy on Expansys? £127.  Gosh.

Ok, let’s look at a more expensive phone – the N70.   How much to borrow at 93.8% APR? £609.59.   Sounds steep. 

How much for the same phone on Expansys? £254.95.   That’s a difference of £354. 

You can see the workings out to the left there. 

I wonder how many people are availing themselves of the Phones on Finance service?  There’s nothing wrong with the concept per se.  They appear to be offering a useful, if rather extraordinarily priced (98% APR?), service for pay as you go customers hunting for a cheap (monthly/weekly) method of getting hold of a handset.

To be clear about the APR, yes it’s 98% but (quoted from their FAQ) —

The APR means Annual Percentage Rate and is affected by the percentage interest and the duration of the loan. We only charge 30% interest however because the time period of the loan we provide you to pay for the phone is a short time (9 months OR 40 weeks) the APR calculates higher. If we provided you with a loan to pay for the phone over a longer period of time, for example 5 years, at the same 30% interest rate, the APR would be 11.11% APR Variable because the duration of the loan is for a longer time.

Yes they only charge 30% APR — but the phone handset price is pretty inflated already! 

I quite like the concept of microloans like this — although I’d be far more in favour of a cheaper system along the lines of what the operators do already.  Generally speaking, if you’re going to take out a loan for a handset, you might as well get yourself a contract with an operator.  However if you fail the operator’s mandatory credit check — and you still want a top of the range phone without forking out a huge lump of cash immediately….